Comparative Analysis

Of

And

Submitted to: Prof. Ram Ramanan

FINANCIAL ACCOUNTING

Submitted by:
GROUP 3, SECTION B
Aiswariya Mohan - 1711078
Botcha Naveena Pallavi - 1711091
Kaushik Maji - 1711104
Preetika Muralidharan - 1711117
Sahil Baid - 1711130
Vidit Yadav - 1711143

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Contents
1. Contents ..................................................................................................................................... 2
2. Abstract ...................................................................................................................................... 3
3. Pharmaceutical Industry in India ............................................................................................... 3
4. Cipla Incorporation .................................................................................................................... 4
5. Sun Pharmaceuticals India Limited ............................................................................................ 5
6. Management Discussion Analysis .............................................................................................. 5
7. Analysis of Accounting Policies (Cipla and Sun Phrama) ........................................................... 7
1. BASIS OF ACCOUNTING:..................................................................................................... 7
2. USE OF ESTIMATES:............................................................................................................ 8
3. OPERATING CYCLE: ............................................................................................................ 8
4. DEPRECIATION AND AMORTIZATION: ............................................................................... 8
5. LEASES: ............................................................................................................................... 8
6. REVENUE RECOGNITION: ................................................................................................... 9
7. INVESTMENTS: ................................................................................................................... 9
8. INVENTORIES: .................................................................................................................... 9
9. BORROWING COSTS: .......................................................................................................... 9
10. IMPAIRMENT OF ASSETS: ................................................................................................. 9
8. Horizontal Analysis................................................................................................................... 10
9. Vertical Analysis ....................................................................................................................... 11
10. Trend Analysis .......................................................................................................................... 13
11. Quarterly Analysis .................................................................................................................... 16
12. Half Yearly Analysis ............................................................................................................... 17
13. Ratio Analysis ........................................................................................................................... 18
1. Liquidity Ratios ................................................................................................................. 18
2. Solvency Ratios ................................................................................................................ 18
3. Profitability Ratios ............................................................................................................ 19
4. Turnover Ratios ................................................................................................................ 19
5. Capital Market Ratios....................................................................................................... 20
14. Cash Flow Statement Analysis ................................................................................................. 21
15. Conclusion ................................................................................................................................ 21
16. References ............................................................................................................................... 22

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Abstract
The Indian pharmaceutical market is the third largest in terms of volume, and
13th largest in terms of revenue in the global pharmaceutical industry. Generic
drugs produced by India is the largest, about 20% of global exports in terms of
volume. Within the period of 2015-2020, the Indian pharmaceutical industry is
expected to see a 15% growth rate, outperforming the global growth rate (5%).

We have studied the annual reports for the past 5 years of Sun Pharmaceuticals
India Limited and Cipla Incorporation and analyzed in different methods through
horizontal analysis, vertical analysis and using financial ratios. We have also
analyzed the two companies using management discussions analysis, over a
period of 5 years to understand the landscape of the industry. The report also
has our recommendations on which company to invest in based upon our
analysis.

Pharmaceutical Industry in India

Indian pharmaceutical industry accounts for an estimated 10% of the total world
production & 2% of the global pharmaceutical market. This sector contributes
approximately 2% to Indias GDP. The growth of Indian pharmaceutical sector
in different phases starting from 1970 to post Trade-Related Aspects of
Intellectual Property Rights (TRIPS) has been quite remarkable.

Trends, Opportunities & Challenges

Research & Development: Global R&D investments are about 15 percent of sales
turnover whereas, in Indian pharmaceutical sector, R&D investment is about 8-
11 percent of total turnover.

Fig - Percentage of R&D-Sales Ratio in Pharmaceutical Industry in India.

Joint venture: The advantages of low-cost skilled labor & government subsidies
have encouraged many foreign firms to join hands with Indian companies in
R&D.

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 Cipla has signed an exclusive partnership with serum institute of India to
sell the vaccines in south Africa.

Less Approval time: Citing global competition, the drug approval process has
been made simpler and the approval time for new plant has also been reduced.
In the draft Patent (Amendment) Rules 2015, the time-period of a patent grant
has been reduced from a year to four months.

Promising domestic market: Increase per capita income, health insurance

penetration & adoption of lifestyle related medicines like cardiovascular,
gastrointestinal, anti-diabetic, respiratory drugs, etc has unleashed a huge
potential in the domestic market. Demand for quality health care by the hug
population is also a favorable factor.

Intellectual property protection: The patent application process for

pharmaceutical products in India is perceived as burdensome for foreign
applicants. Moreover, India relies on test data submitted in another country,
which is not considered as professional according to the industry.

Market Access barriers: Fixing of ceiling price for the essential drugs by NPPA,
under the Drug Price Control Order (DPCO) 2013, is cost based policy. The
industry expects us to adopt a market-based policy. The government contribution
in health care has been only 1.2% of the GDP.

Cipla Incorporation
Cipla is the 3rd largest pharmaceutical company in India in terms of market
share, India sales, IMS MAT March17. It has 43+manufacturing facilities &
1500+ products. Cipla India operations contribute 38% to the groups revenue.
The business growth in India has been 10%. Products launched by Cipla in India
recently include Azmarda & Bolstran (In-licensed products). To put things into
perspective Cipla generated an annual revenue of Rs 14,630 crore with EBIDTA
of Rs 2,476 crore. The net profit in FY2016-17 was Rs 1,006 crore & the free
cash flow from operations was Rs 1,260 crore.

There has been an increase in the percentage of R&D spend compared to the
last financial year. The increase in US ANDA fillings reflects more emphasis on
R&D & its considerable enhancement of output. Keeping pace with the previous
years, Cipla has again paid out a dividend of Rs 160.84 crore in FY2016-17.
This year Cipla also paid back a debt of Rs 1,080 crore which led to a significant
improvement of debt-equity ratio from 0.32 in March16 to 0.21 in March17.

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Sun Pharmaceuticals India Limited
Apart from being the top pharmaceutical company in India with 8.6% market
share, Sun Pharma is also the worlds 4th largest specialty generic
pharmaceutical company. This company owns 30 out of the top 300 brands in
India & its top 10 brands contribute more than 18% of Indias revenue. In
FY2016-17 Sun Pharma generated gross sales of Rs 303 Billion & EBITDA of Rs
88 Billion.

India formulations business of Sun Pharma has recorded a steady growth of 8%

to Rs 77,491 Million in FY2016-17. This growth was achieved despite the jitters
of demonetization & negative price impact of WPI on products that are under
price control.

In FY2016-17, Sun Pharma acquired 14 established brands from Novartis

Pharma AG & Novartis AG for US$ 293 Million in Japan to extend its
geographical presence in the country. It has also enhanced its presence in Russia
by acquiring 85.1% of JSC Biosintez. This financial year was one of the most
important years in terms of integration of Ranbaxy into Sun Pharma. The benefits
of the synergy are reflected well in the financial statements of FY2016-17.
A sneak peak in the R&D wing of Sun Pharma would reveal a comprehensive
basket of 584 ANDAs, 1 BLA & 41 NDAs filed and 36 NDAs & 427 ANDAs
already approved across multiple therapies.

As on March17, Sun Pharma had 157 ANDAs, 5 NDAs & 1 BLA pending for
USFDA approval. These include a combination of normal generics, First-to-file
opportunities, specialty products & as well as complex generics. Riding on the
virtue of good market sentiment & healthy balance sheet, Sun Pharma decided
to return surplus funds to equity shareholders to enhance the overall return to its
shareholders. In June16, Sun Pharmas Board of Directors approved the
buyback of 7.5 million shares at the price of Rs 900/share.

Management Discussion Analysis

1. CIPLA
Despite the uncertainties and challenges in regulatory environment and pricing pressure
in developing markets across the globe, Cipla chose to proceed with its previous strategy
of achieving fast revenue growth, cost consciousness, and increasing profit margin. In
addition, Cipla also planned to cut down its capital investments, generate more cash
flows through improving operational efficiencies and ramp up its R&D investments.

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 Moreover, Cipla is continuing its focus on investing towards developing specialty
franchise through a mix of in-organic opportunities and in-house development.
Thereby, the company is expecting higher growth in second half of FY 17-18 due to
some key product launches in US and introduction of GST.
In FY17, Cipla achieved 6% revenue growth as revenue rose to INR 14,630 crores from
INR 13,790 crores of the previous year. Home markets of India, South Africa, and North
America are majorly responsible for achieving growth. However, management
mentioned that it is lower than growth achieved in previous years majorly due to
macroeconomic challenges such as significant currency volatility in emerging markets.

Indian business contributes to almost 38% of the company total global revenue. Despite
demonetization and pricing challenges, Indian business of Cipla grew by 10%. This
indicates the strong growth potential of Indian pharmaceutical market as penetration of
generic drug remains low. However, competition in Indian pharmaceutical market is
also increasing which can be observed from the fact that contribution of Indian business
to total revenue of Cipla has decreased from 42% in FY14 to 38% in FY16.

As per the annual reports of Cipla, Improvement in margins and topline growth in FY16
led to 7% growth in gross profit of Cipla as well. The favorable product, geography mix
and focus on cost consciousness in manufacturing and procurement made Cipla
achieve improvement in gross profit margin of approx. 300bps. Moreover, Profit after
tax lowered to INR 1006 crores (7% of sales) as compared to FY15 majorly because the
provision on the loss for Cipla Biotech asset and impairment charges.

Consolidated impact due to US acquisition led to the increment of 8% in employee

expenses while increased investment in capacity expansion and R&D raised other
expenses by 11%. Management of Cipla justifies the improvement in R&D investment to
7.6% of sales for FY16 as compared to 6.3% of sales in FY15 because their expectation
of developing high value and complex products. However, decrement in finance
expenses by 23% to INR 159 crores was majorly achieved due to higher cash generation
in India and repayment of long term debt in South Africa. Management of Cipla states
that debt to equity ratio reduced to 0.21 from 0.32 of previous years as the company
paid back the debt of INR 1080.
With a focus on improving operational efficiency, Cipla improved its cash flows. This
can be observed from the fact that despite 6% growth in revenue inventory reduced by
INR 323 crores.

2. SUN PHARMA
Due to aging and growing population, rise in diagnosis and treatment of chronic
conditions, favourable demographic trends, and improved access to healthcare
and increased per capita income, demand for pharmaceutical is increasing and
Sun Pharma as the 4th largest specific generic pharmaceutical company has
shown growth in line with this trend.
Sun Pharma net sales grew by 9% to INR 309 billion in FY17. However, 1.8%
sales growth in FY16 also indicates the significant pricing pressure driven by
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 customer consolidation and higher competitive intensity, especially in the US.
Despite many challenges such as delays in product approvals, pricing, and
competition, Sun Pharma encountered growth in US market of 2% due to 180-
day exclusivity in the marketing of one of its products.
As per the annual reports of Sun Pharma, FY17 also recorded 8% decline in
revenue of one of the Sun Pharma subsidiary, Taro. Management of Taro states
this decline majorly due to buying consortium pressures and new entrants to the
market. However, Taro secured growth of 10% in FY 16 primarily due to
increased market share of select products and impact of pricing adjustment in
the prior year.
However, Indian formulation business of Sun Pharma achieved stable revenue
growth of 8% across previous financial years. Sun Pharma currently is the largest
player in India with 8.8% of market share with a strong position in acute and
chronic segments. Unlike some of its competitors, Sun Pharma has been
successful in maintaining its revenue contributions from Indian pharmaceutical
market because its specialization in offering a comprehensive therapy basket of
technically complex products.
Meanwhile, Emerging markets also showed improved performance of 26%
revenue growth to INR 45,299 million in FY17. Through acquiring JSC Biosintez,
Sun Pharma improved its presence in Russian market through getting access to
the local manufacturing facility and providing broader product offerings to CIS
and Russian markets. Sun Pharma management explains this growth majorly
because stable currencies which led to improvement in underlying business as
opposed to unavoidable currency movement in previous year leading to
decrement of revenue by 4% in FY16.
To move up the pharmaceutical value chain and assuming R&D to be the growth
engine of the pharmaceutical sector, Sun Pharma top leadership has focused on
developing complex generics and specialty products like many of its competitors
as R&D investment in FY17 improved to INR 23 billion. Through higher
investment in new product development, Sun Pharma management is expecting
to improve its presence in emerging markets led by chronic therapies like
cardiology, diabetes, and neurology.

Analysis of Accounting Policies (Cipla and Sun Pharma)

1. BASIS OF ACCOUNTING:
Both Sun Pharma and Cipla prepare their financial statements under the
historical cost convention on an accrual basis, in accordance with the GAAP
principles (Generally Accepted Accounting Principles in India), to comply with the
Accounting Standards given under Section 133 of the Companies Act 2013,
issued by the Securities and Exchange Board of India (SEBI).

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2. USE OF ESTIMATES:
Both the companies make estimates and assumptions according to the Generally
Accepted Accounting Principles in India. These estimates and assumptions affect
the reported balance of assets and liabilities on the date of the financial
statements. They also affect the reported amount of revenues and expenses
during the reporting period. Both the companies make sure that their estimates
of contingent liabilities are prudent and reasonable. Some of the areas where
they have had to make estimates are tangible and intangible assets, inventory
valuation, deferred taxes, cash generating units, sales returns provisions, and
provisions for litigations and contingencies.

3. OPERATING CYCLE:
Both the companies have taken twelve months as the time required for
classification of current and non-current assets and liabilities. The time is
measured as the normal time between the acquisition of the assets and the
realization into cash or cash equivalents.

4. DEPRECIATION AND AMORTIZATION:

Sun Pharma uses straight line method for depreciation of fixed assets, based
upon the useful lives of the fixed assets. The useful lives of assets are given in
Part C of Schedule II of Companies Act, 2013. Sun Pharma amortizes intangible
assets by estimating their useful lives and applying straight line method from the
date they are available to use, over their estimated lives.
Cipla uses straight line method for depreciation of tangible fixed assets, by
measuring the useful lives as per Part C of Schedule II of Companies Act, 2013.
For fixed assets, Cipla uses written down value method, over the useful lives as
prescribed in Part C of Schedule II of Companies Act, 2013. Cipla estimates the
useful lives of intangible assets like software and trademarks, as best as possible.
Intangible assets are then amortized on a systemic basis based on their useful
lives.

5. LEASES:
In Sun Pharma, the lease rental income on operating leases is recognized using
straight line method over the term of the lease. The income is given under the
Statement of Profit and Loss. For assets under finance leases, the finance income
is calculated based on the constant rate of return on the outstanding net
investment as per the Accounting Standard.
Cipla also calculates the lease rental income using straight line method as per
the conditions are given in the lease agreement. The income is then recorded in
the Statement of Profit and Loss.

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6. REVENUE RECOGNITION:
Both Sun Pharma and Cipla record their revenue from sales when the significant
risks and rewards of ownership of the goods have been passed on to the buyer,
which is usually during the dispatch of goods. Cipla records the revenue from
services when the services are completed.

7. INVESTMENTS:
In Sun Pharma, investments are divided into current investments and long-term
investments. Current investments are recorded at the lower of cost and fair value,
while long-term investments are stated at cost less provision.
Cipla classifies their investments into current and non-current investments. Like
Sun Pharma, they record their current investments at the lower of cost and fair
value. Investment property is carried at cost minus the depreciation on the
property, calculated in the same method as for fixed assets.

8. INVENTORIES:
Sun Pharma records most of its inventories at the lower of cost and net realizable
value. Raw materials, packing materials, R&D materials, work-in-progress,
stock-in-trade and finished goods are recognized this way. The cost of inventory
is usually calculated using the weighted average method, except in some cases
where FIFO method is applied.
Cipla records raw and packing materials at the lower of cost and net realizable
value. Work-in-process, stores, spares, and consumables are recognised at cost.
They value stock-in-trade and finished goods at the lower of cost and net
realizable value. Like Sun Pharma, Cipla calculates its cost of inventory using the
weighted average method.

9. BORROWING COSTS:
Both Sun Pharma and Cipla Pharmaceuticals capitalize their borrowing costs as
a part of the cost of assets, up until the date where the assets are ready for use.
The remaining borrowing costs are recorded as expenses over the period in
which they are incurred in the Statement of Profit and Loss.

10. IMPAIRMENT OF ASSETS:

The two companies follow the same method for analyzing the impairment of
assets. The assets are checked on every Balance Sheet date, and it there is a
recoverable amount, they are reduced to that value. The loss is taken as an
impairment loss and recorded in the Statement of Profit and Loss. The reversal
of impairment loss is also noted in the Statement of Profit and Loss.

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Horizontal Analysis
1. BALANCE SHEET
Cipla Sun Pharma
Extract of --- in Rs. Cr. --- Horizontal Balance Sheet --- in Rs. Cr. ---- Horizontal
Balance Sheet Analysis Analysis
of Cipla
Mar-17 Mar 16 Mar 17
Mar 17 Mar-16 Mar 17
EQUITIES AND LIABILITIES
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
SHAREHOLDER'S FUNDS
Total Share 239.93 240.66 -0.30
Total Share 160.9 160.68 0.14
Capital
Capital
Total Reserves 20,631.58 21,242.43 -2.88
Total Reserves 12,639.61 12,178.61 3.79
and Surplus
and Surplus
Total 20,871.51 21,483.09 -2.85
Total 12,800.51 12,339.29 3.74
Shareholders
Shareholders
Funds
Funds
NON-CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Total Non- 250.88 598.97 -58.11 Total Non- 1,894.15 3,867.39 -51.02
Current Current
Liabilities Liabilities
CURRENT LIABILITIES CURRENT LIABILITIES

Total Current 2,555.83 3,081.20 -17.05 Total Current 10,982.57 8,838.78 24.25
Liabilities Liabilities
Total Capital 15,607.22 16,019.46 -2.57 Total Capital 33,748.23 34,189.93 -1.29
And Liabilities nd Liabilities
ASSETS ASSETS

NON-CURRENT ASSETS NON-CURRENT ASSETS

Fixed Assets 4,791.35 4,396.94 8.97 Fixed Assets 4,979.11 4,335.90 14.83
Total Non- 9,261.88 9,555.56 -3.07 Total Non- 27,378.37 28,846.23 -5.09
Current Assets Current Assets
CURRENT ASSETS CURRENT ASSETS
Total Current 6,345.34 6,463.90 -1.83
Total Current 6,369.86 5,343.70 19.20
Assets
Assets
Total Assets 15,607.22 16,019.46 -2.57
Total Assets 33,748.23 34,189.93 -1.29

Both Sun Pharma and Cipla Pharmaceuticals have shown a decline in Total assets and
Total equity & liability. Cipla had a maximum decline in Non-Current Liabilities,
58.11%. Sun Pharma also had a highest decline in Non-Current Liabilities, 51.02%.
Also, the maximum increase for both Cipla and Sun Pharma is in Fixed Assets,
investment in new tangible assets, 8.97%, and 14.83% respectively. There was 3.79%
increase in reserves and surplus for Cipla while there is 2.88% decline in reserves and
surplus for Sun Pharma. This indicates a loss in the financial year for Sun Pharma.

2. PROFIT AND LOSS STATEMENT

Cipla
Profit & Loss account (Extract) --- in Rs. Cr. --- Horizontal Analysis

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 Mar-17 Mar 16 Mar 17
INCOME
Revenue From Operations [Net] 10,673.52 11,779.90 -9.39
Total Revenue 11,104.43 12,293.20 -9.67
EXPENSES
Total Expenses 9,917.49 10,553.67 -6.03
Profit/Loss Before Exceptional, 1,186.94 1,739.53 -31.77
ExtraOrdinary Items And Tax
Total Tax Expenses 212 341.5 -37.92
Profit/Loss For The Period 974.94 1,398.03 -30.26

Sun Pharma
Profit & Loss account (Extract) --- in Rs. Cr. --- Horizontal Analysis

Mar-17 Mar 16 Mar 17

INCOME
Revenue From Operations [Net] 7,806.70 7,132.03 9.46
Total Revenue 8,321.11 8,046.28 3.42
EXPENSES
Total Expenses 8,353.55 9,044.06 -7.63
Profit/Loss Before Exceptional, -324.4 -997.78 -67.49
ExtraOrdinary Items And Tax
Total Tax Expenses 2.51 5.45 -53.94
Profit/Loss For The Period -349.5 -1,073.36 -67.44

Both Sun Pharma and Cipla Pharmaceuticals have shown a decline in Profit for the
period in comparison to the previous period. Cipla had a maximum decline in total
revenue, 9.67%. Sun Pharma had an increase in revenue, 3.42%. Also, the profit has
increased for Sun Pharma from -1073.36 to -349.50, indicating a 67.44% reduction
in loss. There is a 30.26% reduction in profits for Cipla. This indicates a loss of profits
in the financial year for Cipla. There was 7.63% and 6.03% decline in expenses for Sun
Pharma and Cipla respectively. This is a positive indicator, and both the companies
must continue with their existing expense reduction measures. Also, there is a decline in
tax expense of 37.92% and 53.94% for Cipla and Sun Pharma due to reduction and
taxable income.

Vertical Analysis
1. BALANCE SHEET
Cipla
Balance Sheet of Cipla in Rs. Cr. Vertical Analysis

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 Mar 17 Mar 17

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Total Share Capital 160.9 1.03
Total Reserves and Surplus 12,639.61 80.99
Total Shareholders Funds 12,800.51 82.02
NON-CURRENT LIABILITIES
Total Non-Current Liabilities 250.88 1.61
CURRENT LIABILITIES
Total Current Liabilities 2,555.83 16.38
Total Capital and Liabilities 15,607.22 100.00
ASSETS
NON-CURRENT ASSETS
Fixed Assets 4,791.35 30.70
Total Non-Current Assets 9,261.88 59.34
CURRENT ASSETS
Total Current Assets 6,345.34 40.66
Total Assets 15,607.22 100

Sun Pharma
Balance Sheet in Rs. Cr. Vertical Analysis

Mar-17 Mar 17

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Total Share Capital 239.93 0.71
Total Reserves and Surplus 20,631.58 61.13
Total Shareholders Funds 20,871.51 61.84
NON-CURRENT LIABILITIES
Total Non-Current Liabilities 1,894.15 5.61
CURRENT LIABILITIES
Total Current Liabilities 10,982.57 32.54
Total Capital And Liabilities 33,748.23 100.00
ASSETS
NON-CURRENT ASSETS
Fixed Assets 4,979.11 14.75
Total Non-Current Assets 27,378.37 81.13
CURRENT ASSETS
Total Current Assets 6,369.86 18.87
Total Assets 33,748.23 100.00

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 2. PROFIT AND LOSS STATEMENT
Cipla
Profit and Loss account of Cipla in Rs. Cr. Vertical Analysis

Mar 17 Mar 17
INCOME
Revenue From Operations [Gross] 10673.5 100.00
Total Revenue 11104.4 104.04
EXPENSES
Total Expenses 9917.49 92.92
Profit/Loss Before Exceptional, 1186.94 11.12
ExtraOrdinary Items And Tax
Total Tax Expenses 212 1.99
Profit/Loss For The Period 974.94 9.13

Sun Pharma
Profit & Loss account - in Rs. Vertical Analysis
Cr. -
Mar-17 Mar 17
INCOME
Revenue From Operations [Net] 7806.7 100
Total Revenue 8321.11 106.59
EXPENSES
Total Expenses 8353.55 107.01
Profit/Loss Before Exceptional, -324.4 -4.16
ExtraOrdinary Items And Tax
Total Tax Expenses 2.51 0.03
Profit/Loss For The Period -349.5 -4.48

Vertical Analysis measures each component as a percent of the total. Both Cipla and
Sun Pharma are equity financed companies, with 82.02% and 61.8%. Also in Profit
and Loss statement of Sun Pharma, we can see expenses are more than sales,
indicating a loss. For Cipla expenses are less than sales, indicating a profit.

Trend Analysis
1. BALANCE SHEET
Cipla
Balance Sheet of Cipla Trend Analysis

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 Mar 17 Mar-16 Mar-15 Mar-14 Mar-13
EQUITIES AND LIABILITIES
Total Share Capital 100.199 100.062 100.006 100 100
Total Reserves and Surplus 145.134 139.84 125.498 114.033 100
Total Shareholders Funds 144.32 139.12 125.037 113.779 100
NON-CURRENT LIABILITIES
Total Non-Current Liabilities 69.8655 166.802 145.626 115.743 100
CURRENT LIABILITIES
Total Current Liabilities 112.86 136.059 158.03 106.718 100
Total Capital And Liabilities 135.8 139.38 132.18 112.45 100
ASSETS
NON-CURRENT ASSETS
Fixed Assets 127.138 116.672 104.928 103.509 100
Total Non-Current Assets 198.88 205.186 185.379 168.048 100
CURRENT ASSETS
Total Current Assets 92.8198 94.5541 95.9403 74.5733 100
Total Assets 135.8 139.38 132.18 112.45 100

Sun Pharma
Balance Sheet Trend Analysis

Mar 17 Mar-16 Mar-15 Mar-14 Mar-13

EQUITIES AND LIABILITIES

Total Share Capital 231.682 232.387 200 200 100

Total Reserves and Surplus 268.454 276.403 293.166 93.695 100

Total Shareholders Funds 267.965 275.817 291.928 95.1084 100

NON-CURRENT LIABILITIES

Total Non-Current Liabilities 626.062 1278.26 1192.27 900.033 100

CURRENT LIABILITIES

Total Current Liabilities 950.822 765.223 956.84 320.855 100

Total Capital And Liabilities 364.984 369.761 404.97 149.646 100

ASSETS

NON-CURRENT ASSETS

Fixed Assets 335.558 292.21 288.164 117.778 100

Total Non-Current Assets 510.863 538.252 597.011 161.683 100

CURRENT ASSETS

Total Current Assets 163.865 137.467 140.209 133.051 100

Total Assets 364.984 369.761 404.97 149.646 100

2. PROFIT AND LOSS STATEMENT

Cipla
Profit and Loss account of Cipla Trend Analysis
Mar 17 Mar-16 Mar-15 Mar-14 Mar-
13

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 INCOME
Revenue From Operations [Net] 132.716 146.472 121.095 112.85 100
Total Revenue 131.701 145.8 121.919 114.576 100
EXPENSES
Total Expenses 154.485 164.395 136.139 122.159 100
Profit/Loss Before Exceptional, 58.9971 86.4638 76.5446 90.381 100
ExtraOrdinary Items And Tax
Total Tax Expenses 42.001 67.6573 71.1005 85.1907 100
Profit/Loss For The Period 64.6894 92.7623 78.3679 92.1194 100

Sun Pharma
Profit & Loss account Trend Analysis

Mar 17 Mar-16 Mar-15 Mar-14 Mar-13

INCOME
Revenue From Operations [Net] 347.99 317.91 344.61 121.44 100
Total Revenue 311.80 301.50 308.34 112.66 100
EXPENSES
Total Expenses 416.49 450.91 487.99 146.18 100
Profit/Loss Before Exceptional, -48.93 -150.49 -235.13 11.24 100
ExtraOrdinary Items And Tax
Total Tax Expenses 1.71 3.72 -57.92 18.73 100
Profit/Loss For The Period -67.66 -207.79 -285.38 -547.58 100

Both Sun Pharma and Cipla Pharmaceuticals have shown a decline in Profit over the
years.

For Cipla, from 2013 to 2017 the revenue from operations and total revenue grew.
Expenses grew much more than revenue. This resulted in a decline in profits over the
years. Fixed assets increased by 27.14 index numbers.

For Sun Pharma, from 2013 to 2017 the revenue from operations and total revenue
grew. Expenses grew much more than revenue. This resulted in a decline in profits over
the years. Fixed assets increased by 135.55 index numbers. There was growth in huge
numbers indicating a wider investment and expansion by the firm. Due to this higher
initial investment, the company is in the loss.

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Quarterly Analysis
1. Cipla
Quarterly Results of Vertical Horizontal
Cipla Analysis Analysis
Trend Analysis (Jun'17 - Jun'16)
(Jun'17) (Jun'17 -
Mar'17)
Jun '17 Mar '17 Dec '16 Sep '16 Jun '16
INCOME
Net Sales/Income 100.00 -0.13 98.20 98.32 97.54 103.23 100.00
from operations
Total Income from 103.04 -0.41 97.92 98.32 97.58 102.65 100.00
Operations
EXPENDITURE
Total Expenses 91.86 -9.27 98.41 108.46 93.67 102.44 100.00
P/L Before Other Inc. 11.18 405.68 94.09 18.61 128.31 104.33 100.00
, Int., Excpt. Items &
Tax
Tax 3.15 40.79 167.50 118.97 173.97 40.00 100.00
Net Profit/(Loss) For 9.94 901.59 92.92 9.28 122.41 118.11 100.00
the Period

2. Sun Pharma
Quarterly Results Vertical Horizontal
Analysis Analysis
Trend Analysis (Jun'17 - Jun'16)
(Jun'17) (Jun'17 -
Mar'17)
Jun '17 Mar '17 Dec '16 Sep '16 Jun '16
INCOME
Net Sales/Income from 100.00 -10.94 99.73 111.99 107.46 114.16 100
operations
Total Income from 103.95 -10.64 101.36 113.43 108.83 114.12 100
Operations
EXPENDITURE
Total Expenses 120.19 7.18 106.80 99.65 105.50 109.09 100
P/L Before Other Inc. , -16.24 -487.85 162.72 -41.95 71.34 57.43 100
Int., Excpt. Items & Tax
Tax 0.07 -119.47 36.52 -187.54 76.81 83.48 100
Net Profit/(Loss) For -74.45 -1464.25 852.36 -62.48 107.39 -121.84 100
the Period

Going through the quarterly analysis of both the firms Cipla and Sun Pharma over a
year, we can see a fall in net sales from June 16 to June17. Also in Cipla, there is a
fall in net profits too. This shows the firms need to increase revenue or reduce expenses
to increase profits in upcoming years. If sales decline is due to improved health
condition, then it is a positive welfare measure.

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Half Yearly Analysis
1. Cipla
Half Yearly Results of Vertical Horizontal Trend Analysis (Mar'17 - Mar'15)
Cipla Analysis Analysis
(Mar'17) (Mar'17 -
Sep'16)
Mar '17 Sep '16 Mar '16 Sep '15 Mar '15
INCOME
Net Sales/Income from 100 -4.4953 105.348 110.306 107.171 131.139 100
operations
Total Income from 103.347 -4.1802 103.918 108.452 104.856 128.131 100
Operations
EXPENDITURE
Total Expenses 94.5973 -1.1389 109.186 110.444 115.764 115.989 100
P/L Before Other Inc. , 8.74956 -28.096 68.2924 94.977 31.0917 210.235 100
Int., Excpt. Items & Tax
Tax 2.76122 109.399 88.9964 42.5009 -10.563 141.384 100
Net Profit/(Loss) For the 7.0645 -39.612 71.5784 118.532 58.6136 239.226 100
Period

2. Sun Pharma
Half Yearly Results Vertical Horizontal Trend Analysis (Mar'17 - Mar'16)
Analysis Analysis
(Mar'17) (Mar'17 -
Sep'16)
Mar '17 Sep '16 Mar '16 Sep '15 Mar '15
INCOME
Net Sales/Income from 100.00 2.47 172.26 168.11 157.34 167.58 100
operations
Total Income From 103.59 3.80 171.08 164.81 162.41 169.96 100
Operations
EXPENDITURE
Total Expenses 104.93 -1.88 113.86 116.05 113.44 130.44 100
P/L Before Other Inc. , -1.33 -81.34 4.22 22.60 19.58 54.71 100
Int., Excpt. Items & Tax
Tax -0.10 -160.35 0.40 -0.66 -0.24 -0.73 100
Net Profit/(Loss) For the -1.78 -305.65 40.23 -19.56 50.23 589.31 100
Period

Going through the half-yearly analysis of both the firms Cipla and Sun Pharma over
two years, we can see an increase in net sales from Mar 15 to Mar17. Also in Cipla
and sun pharma, there is a fall in net profits. This shows the firms need to increase
revenue or reduce expenses to increase profits in upcoming years. This is an alarming
situation as there is an increase in sales and but not in profits. The expenses need to be
revaluated and any unnecessary expenses need to be avoided.
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Ratio Analysis
1. Liquidity Ratios
Cipla 2017 2016 2015 2014
Current Ratio 2.48 2.10 1.83 2.11
Quick Ratio 1.44 1.15 0.91 1.07

Sun Pharma 2017 2016 2015 2014

Current Ratio 0.58 0.60 0.49 1.40
Quick Ratio 0.37 0.36 0.30 1.15

Liquidity ratios show the firms ability to meet short term liabilities as when they fall due.
The current ratio shows a number of current assets per rupee of current liabilities of the
firm. The ideal current ratio is 2:1. From the above tales, Cipla had always maintained
its current ratio close to ideal ratio. Ciplas operations will not be disrupted in paying its
current liabilities. However, for Sun Pharma the current ratio has further declined over
the years. There is a treat to operations while paying its current liabilities. The ideal
Quick Ratio is 1:1. Same as a Current ratio, only Cipla maintains its ratio close ideal
ratio, while Sun Pharma needs to enhance its operations.

2. Solvency Ratios
Cipla 2017 2016 2015 2014
Debt - Equity 0.03 0.09 0.12 0.09
Liabilities - Equity 0.22 0.30 0.37 0.28
Interest Coverage 31.28 12.83 40.17 49.07

Sun Pharma 2017 2016 2015 2014

Debt - Equity 0.23 0.26 0.24 0.33
Liabilities - Equity 0.62 0.59 0.64 0.87
Interest Coverage -0.14 -3.12 -7.97 5.62

The Debt-Equity is low for both the firms, this is because pharmaceutical companies
have huge expenses in unpredictable activities such as R&D, Drug approval, Patent
registrations. Also, Debt financing is riskier due to a potential threat to solvency. Interest
coverage ratio shows the protection available to creditors for payment of interest
charges. The higher coverage ratio of Cipla proves that it does not have much interest-
bearing debt and pay its creditors. It is negative for Sun Pharma as the firm is in the
loss.

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 3. Profitability Ratios
Cipla 2017 2016 2015 2014
Gross Profit 11.12 14.77 15.81 20.03
Profit Margin on Sales 9.13 11.87 12.13 15.30
Return on Assets 6.17 8.96 8.40 11.37
Return on Equity 7.76 11.93 11.15 14.64
Leverage 1.26 1.33 1.33 1.29

Sun Pharma 2017 2016 2015 2014

Gross Profit -4.16 -13.99 -20.17 2.74
Profit Margin on Sales -4.48 -15.05 -19.07 -103.83
Return on Assets -1.03 -3.00 -5.75 -24.51
Return on Equity -1.65 -4.85 -9.78 -37.23
Leverage 1.60 1.62 1.70 1.52

The solvency and liquidity ratios measure the risk of the investment; profitability ratios
measure the returns to investment. The Gross Profit ratio gives the ratio profit upon
sales. There has been a steady increase in GP ratio for Cipla indicating a constant
margin. However, for Sun Pharma there are losses, and we see huge changes is GP
ratios indicating an unstable growth.

The profit margin on Sales measures the amount of net profit earned from each rupee
of revenue. There is a decline in Profit margin in Cipla. This is due to fall in net sales.
For, Sun Pharma, the firm is slowing making profits, and we can see a reduction in the
integral value. The Return on Assets has fallen in Cipla causing a fall on return on
equity. Also, there is a fall in Leverage further causing a decline in ROE in Cipla. Sun
Pharma also has a similar situation. Adding to existing losses, the decrease in leverage
further weakness the Return on Equity.

4. Turnover Ratios
Cipla 2017 2016 2015 2014
Asset Turnover 0.67 0.75 0.69 0.74
Fixed Asset Turnover 2.32 2.82 2.48 2.37
Receivables Turnover 5.56 5.95 5.14 5.38
Inventory Turnover 2.11 2.16 1.89 2.08
Average Collection Period 64.72 60.47 69.99 66.90
Average Holding Period 170.85 167.05 190.29 173.19
Operating Cycle 235.57 227.52 260.28 240.09

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 Cipla 2017 2016 2015 2014
Asset Turnover 0.23 0.20 0.30 0.24
Fixed Asset Turnover 1.68 1.66 2.57 1.69
Receivables Turnover 3.29 3.73 6.85 4.58
Inventory Turnover 2.19 2.13 3.22 1.50
Average Collection Period 109.35 96.40 52.52 78.64
Average Holding Period 164.19 169.03 111.87 239.21
Operating Cycle 273.53 265.43 164.39 317.86

The Asset Turnover measures a firms efficiency in utilizing its assets. Cipla has been
making efficient use of its assets. Cipla had sales of Rs.67 per Rs.100 of investment in
assets in 2016. The decline from 2015 is due to depreciation in assets. Sun Pharma
had sales of Rs.23 per Rs.100 of investment in assets in 2016. This is a lot less than
Cipla.

Regarding Receivables Turnover and Inventory Turnover ratios, Average collection and
Holding period are analysed. The average collection period has increased for Sun
Pharma indication a longer time in converting credit to cash. The operating cycle which
defines the time taken to convert inventories into cash had also increased for Cipla and
Sun Pharma from 2016 to 2017.

5. Capital Market Ratios

Cipla 2017 Sun Pharma 2017
Price - Earnings 46.17 Price - Earnings -4834.50
Earning Yield 2.17 Earning Yield -0.02
Dividend Yield 0.36 Dividend Yield 0.21
Price - to - Book 3.52 Price - to - Book 5.57

For Cipla, the price to earnings ratio is Rs.46.17 indicating growth prospects. The
earnings yield is 2.17%, there a positive return in the long term. The dividend yield is
0.36%, giving a fair annual return, especially for those depending on the dividend. The
Price- to book is 3.52 times indicating a fair valuation of the stock price.

For Sun Pharma, the price to earnings ratio is Rs.-4834.5 showing a warning. The
earnings yield is -0.02%, there a negative return in the long term. This is demotivating
for the investor. The dividend yield is 0.21%, giving a fair annual return, especially for
those depending on the dividend. The Price- to book is 5.52 times indicating a slight
over valuation of the stock price.

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Cash Flow Statement Analysis
1. Cipla
Cipla 2017 2016 2015 2014
Operating Cash Margin 0.21 0.15 0.11 0.20
Current Liability Cover 0.86 0.56 0.29 0.75
Long-term Debt Cover 8.79 2.89 2.01 4.36
Cash Interest Cover 56.26 11.75 26.74 47.91

2. Sun Pharma
Sun Pharma 2017 2016 2015 2014
Operating Cash Margin -0.21 -0.17 0.02 -0.88
Current Liability Cover -0.15 -0.14 0.01 -0.65
Long-term Debt Cover -0.86 -0.32 0.04 -0.88
Cash Interest Cover -5.69 -5.13 0.85 -149.10

Both Sun Pharma and Cipla Pharmaceuticals have low operating cash margin.
However, Cipla has a positive ratio. The ideal Current liability cover is 2:1. Both the
companies fall short of the ideal ratio. Long-term debt cover measures firms ability to
repay its debt out of cash flow from operating activity. Cipla has a high ratio in 2017.

Conclusion
The comparison between the Cipla and Sun Pharma is given below. In the table
+ means the firm is doing well, +/- means the firm is doing neutral. -
means the firm is doing bad. Based on the table below, we are trying to find
out which is a better company to invest.
Parameter Cipla Sun Pharma

Sales growth +/- +/-

EBITA growth - +/-

Profitability + -

Liquidity + -

Solvency + -

Capital Market + -

Cash flow + -

However, As Sun Pharma is hugely depended on subsidiaries, we need to

consider consolidated balance sheet and various other external factors.

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References
http://www.business-standard.com/article/companies/cipla-retains-top-slot-in-domestic-
pharma-market-110020900121_1.html
http://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/cipla/C
http://www.sunpharma.com/investors/annualreports
http://www.cipla.com/en/investor-information/annual-report-and-chairman-s-speech.html
http://www.moneycontrol.com/financials/sunpharmaceuticalindustries/cash-flowVI/SPI#SPI
https://www.ibef.org/download/Pharmaceutical-January-2017-D.PDFs
Excel worksheet titled 3B.xlsx

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